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I have no opinion whether this is a bubble or not. Just one thing: This is not a Ponzi Scheme. Get your definition of Ponzi Schemes right, please. Ponzi Schem

I have no opinion whether this is a bubble or not. Just one thing: This is not a Ponzi Scheme. Get your definition of Ponzi Schemes right, please. Ponzi Schemes are a specific type of fraud, not to be generalised to everything that relies on superficially similar principles.

kephra 15y ago
The startup scheme is more like betting on horses. So startup bubble is a gambling scheme, not a Ponzi scheme.
pyre 15y ago
I believe that by 'Ponzi Scheme' he's referring to the idea that you can sell growth in users to investors. E.g. "We're not profitable, but we're growing by 100k users per week!" The idea being that the only 'value' you have is in user growth, and once that slows down then you're sunk. While this might not technically be a Ponzi Scheme, it has some similarities to one.
- aristidb 15y ago
  There are more correct words to describe this. Like "greater fool theory".
joezydeco 15y ago
What about founders that cash out during an investment round, ala Groupon? Right from the wikipedia: "A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation"
- aristidb 15y ago
  Wikipedia's definition is a bit problematic because it doesn't explain why it is fraudulent, and leaves out the precise elements that make it fraudulent. Namely: promising a non-existent return and the ability to refund, and secretly doing so by refunding (as a central party) old members. Note that Wikipedia later in the article does clarify some of these points. To quote: - In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means no investment return.) - A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments. In the case of Groupon founders cashing out, that was even publicly announced, and quite certainly not fraudulent in itself.
fr0sty 15y ago
A ponzi is where you use the money from new investors to pay off earlier investors. Early investors in startups cash out during later funding rounds or acquisitions. QED.
- aristidb 15y ago
  "You" vs. "other people". In bubbles, the investors just trade the shares among each other. In a Ponzi scheme, there is a central party that refunds investors on demand, and does so with money from new investors. A Ponzi scheme is always a fraud, frothy valuations in a bubble might indicate market manipulation, but not _necessarily_ fraud.
- granfalloon 15y ago
  you're forgetting the fraud part

kephra 15y ago

The startup scheme is more like betting on horses. So startup bubble is a gambling scheme, not a Ponzi scheme.

pyre 15y ago

I believe that by 'Ponzi Scheme' he's referring to the idea that you can sell growth in users to investors. E.g. "We're not profitable, but we're growing by 100k users per week!" The idea being that the only 'value' you have is in user growth, and once that slows down then you're sunk. While this might not technically be a Ponzi Scheme, it has some similarities to one.

aristidb 15y ago
There are more correct words to describe this. Like "greater fool theory".

joezydeco 15y ago

What about founders that cash out during an investment round, ala Groupon? Right from the wikipedia: "A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation"

aristidb 15y ago
Wikipedia's definition is a bit problematic because it doesn't explain why it is fraudulent, and leaves out the precise elements that make it fraudulent. Namely: promising a non-existent return and the ability to refund, and secretly doing so by refunding (as a central party) old members. Note that Wikipedia later in the article does clarify some of these points. To quote: - In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means no investment return.) - A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments. In the case of Groupon founders cashing out, that was even publicly announced, and quite certainly not fraudulent in itself.

fr0sty 15y ago

A ponzi is where you use the money from new investors to pay off earlier investors. Early investors in startups cash out during later funding rounds or acquisitions. QED.

aristidb 15y ago
"You" vs. "other people". In bubbles, the investors just trade the shares among each other. In a Ponzi scheme, there is a central party that refunds investors on demand, and does so with money from new investors. A Ponzi scheme is always a fraud, frothy valuations in a bubble might indicate market manipulation, but not _necessarily_ fraud.
granfalloon 15y ago
you're forgetting the fraud part